Boards under the microscope

Board performance is under greater scrutiny than ever before. Mark Pownall looks at the changing corporate landscape.

Almost any leading director will tell you times have changed around the boardroom table.

Western Australia has joined the global shift in corporate governance that has swept the globe, catching the likes of Enron, Andersen, and, more recently, Parmalat in its net. Closer to home, let’s not forget local disasters such as HIH and One.Tel.

While many of our business leaders think new regulations have gone too far in terms of prescription, most welcome the new scrutiny of their activities and value.

Arguably, WA had its own seismic corporate governance jolt in the late 1980s when Bond Corp and the like imploded, ending a period of heady excess.

The result may have been boards that erred on the side of caution but WA has largely been out of the headlines in recent times as Australia’s corporate giants have stumbled, prompting ever more vigilant regulators and investors to demand new rules.

Board members who discussed the issue with WA Business News believed it was appropriate that directors felt the same scrutiny management has been experiencing in recent years as company performance has been put under the microscope.

Former BankWest managing director, WA president and national director of the Australian Institute of Company Directors, Leadership WA director and member of the Murdoch University senate, Terry Budge, is one who believes the regulatory momentum has swung too far.

But boards would ultimately benefit from the changes, he said.

“It is probably a good thing in that it will raise standards of director-ships, but at the same time too much is asked of directors,” Mr Budge told WA Business News.

While BankWest has performance-reviewed its individual directors for a long time, Mr Budge said this type thing was becoming commonplace.

“All the things we have improved on in management, inside the organisation, are now coming up to director level,” he said.

Former Freehills managing partner Peter Mansell, whose board memberships include Bunnings Property Trust, WA Newspapers, Foodland, Zinifex, JDV, and unlisted wine group Ferngrove Vineyards, believes boards now expect this.

He said board reviews were done in different ways and some boards had traditionally been better at it than others, but every company was realising the need to catch up in this regard.

“I think out there in general public-land there is a view that boards are resistant to change and are hanging on by their finger nails,” said Mr Mansell, the immediate past president of the WA chapter of the Institute of Company Directors.

“I don’t think that is the case.

“Boards are very keen to do as well as they can.”

Azure Capital executive chairman John Poynton agrees that some boards have been playing catch up with regard to measuring directors’ performance.

“By all means it is something that chairs recognise they have to do, and because people are taking their roles seriously as directors they realise they have to do it,” said Mr Poynton, who is a director of Austal, Multiplex, Burswood, Alinta, and the Payments System Board.

“Being a board member is completely different now to me than it was five years ago.”

He said the change had also swept the directors’ clubs that hoarded positions among ‘mates’.

“There was perpetuity of mediocrity. There is no incentive under those circumstances to review performance,” Mr Poynton said.

“Most people say now if they are going to sit on a board, they want it to work.”

Gerard Daniels Australia manager performance consulting Sue Jauncey said directors with whom she had discussed performance measurement had embraced the idea of having their performance scrutinised.

“I am heartened by seeing how much directors want to step up to the plate,” she said.

Too often board members were at odds with others because they didn’t necessarily have a clear view about the strategy.

“Confusion is the word that keeps coming up,” Ms Jauncey said regarding her research into boards, which led her to develop a performance measurement system for boards.

“Everyone had their own attitudes about how they thought a board should perform, everyone had a theory or an argument about how things should be.”

She said that could be as simple as some directors, often new to a board, having yet to fully understand the objectives of the business.

While each is different, all the boards Mr Mansell sits on have some form of performance appraisal these days.

“It is becoming a way of life,” he said.

“Generally there is a questionnaire about how the directors think the board is performing, how you think you are performing and how you think others are performing.”

The chairman generally brings the results for discussion around the boardroom as well as one-on-one with the directors.

While this might sound a bit chummy, it is serious stuff increasingly conducted with the rigour expected of any 360-degree review at management level.

Mr Budge said this professional approach was not just restricted to board performance, but also included the selection of new board members, with more emphasis on getting the right skills and independence.

“Nomination committees are much more active,” he said. “It used to be a tap on the shoulder.”

Mike Horabin, principal of directorship recruitment consultancy Board Advice, said while the raised standards had not created problems finding new directors, the mix around the table was changing.

“I think we will see more and more strangers on the board; people with appropriate track records and experience who aren’t necessarily known to others around the board table,” he said.

There is one significant spin-off from this change sweeping across boardrooms – as the responsibility of board members increases and more is expected of them, so too does their value.

Mr Poynton said there now was an increased risk in being a director and a lot more time was required to mitigate that.

“The irony is people now recognise you have to be paid commensurate with the level of effort you put in,” Mr Poynton said.